Mario Draghi has a difficult challenge ahead in stabilising the Eurozone, will further monetary stimulus need to be utilised?

Mario Draghi wary of adding to the QE programme

Mario Draghi the head of the European Central Bank (ECB) spoke last week and he made it known he is reluctant to make any further monetary policy changes despite shockingly low growth in the Eurozone. The ECB has thrown the kitchen sink at the economy in an attempt to stimulate growth. Quantitative Easing (QE) is still ongoing, pumping €60bn into the economy per month and overnight deposit rates are now at 0.05%.

I can appreciate Draghi’s reluctance to make more policy changes as the policy changes already taken have done little to help the struggling economy. Draghi has urged the implementation of structural reform needs to be substantially stepped up to reduce unemployment and boost potential output growth in the euro area. Which in my own translation is “I have tried everything and it is not working so I will pass the buck.”

Throw into the mix the €360bn of bad debt owed to Italian banks, the problems in Greece and the threat of further EU countries holding a referendum and things are not looking to rosy for the Euro long term. If you are a Euro seller, I would be tempted to take advantage of current levels. GBP/EUR is currently very close to a three year high for Euro sellers.

CPI, Industrial Production and Trade Balance Data could cause volatility on GBP/EUR

Draghi is due to speak this morning at 10am, but I do not think his stance will change since his last speech so I do not expect large movements in the market. Tomorrow at 10am Industrial production data will come through and if I had to put my neck on the line I would expect to see a fall and the Euro to drop slightly as a result. This could prop up Sterling if there is a drop in UK average earnings earlier in the morning.

Trade Balance and CPI data is released on Friday at 10.00 and I would expect a slight decline in trade balance and little change in inflation following Draghi’s speech.

Much of the GBPEUR movements today will likely fall on the UKs Consumer Price and Producer Price data. Speak to our brokers today if you have an upcoming currency transfer and would like more information on what is impacting exchange rates. Call us on 01494 725 353.

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